IAC to Buy Ask Jeeves for $1.85B

IAC/InterActiveCorp announced plans today to purchase Ask Jeeves in an all-stock transaction valued at $1.85 billion.

IAC intends to grow Ask Jeeves’ search share by using its local content properties, which include Citysearch, Ticketmaster, Evite, and Match.com, as well as its Expedia travel sites, said Barry Diller, chairman of IAC.

“While you’ve all been hearing this last year about search engines beginning to recognize consumers’ needs for local search, we’ve been developing finely tuned and rich-content local search for years. Our goal is to make Ask the search engine with the best local search content and merchant information out there,” Diller said.

Paid search ads will continue to be provided through Google’s AdWords program through 2007, when Jeeves’ existing agreement ends. Plans beyond that are not set, with Diller leaving open the possibility to renew the agreement. But Ask Jeeves CEO Steve Berkowitz strongly hinted Jeeves might have its own ad system in place by then, based on its Teoma search technology.

“Right now in the sponsored listings business, the relevance of advertising is nowhere near where it needs to be,” Berkowitz said. “You’re going to see, once we’re able to leverage Teoma in the future, the ability to deliver advertising in a much more relevant way, which will increase the ability for local advertisers to really get to the places they want to get to.”

“I think the technologies for search and paid advertising are going to be a single platform, because really it’s going to be a single user experience that’s relevant on a total page. In 2007, we’ll be talking about a very different world,” he added.

Diller plans to invest in marketing to get new users and rely on Ask’s technology to keep them. In this way, IAC hopes to narrow the gap between Ask.com’s brand recognition and its market share.

“While Ask.com is the third most recognized pure search brand, it’s a distant fifth in terms of market share. Despite that gap in share, Ask’s brand is proven, profitable, [and] distinctive and still growing,” Diller said. “A group of four or five players is going to be able to thrive in this market, much like other advertising-supported media businesses. Because of that, a player like Ask has the greatest opportunity for gaining share.”

Other plans include incorporating into Ask.com search results relevant content from IAC’s 40 sites in verticals such as retailing, ticketing, personals, media, financial services, real estate, and teleservices. IAC will also establish a long-term distribution relationship with its travel properties, which it plans to spin off under the Expedia brand.

The plans, announced in December, will include 13 travel-related sites — including Expedia.com, Hotels.com, Hotwire, TravelNow.com, and TripAdvisor. The spin-off is expected to take place soon after the Ask Jeeves deal is completed.

Ask Jeeves itself has been on an acquisition spree over the past year, spending $343 million last May to acquire Interactive Search Holdings, parent of the Excite and iWon portals and MaxOnline network. It also bought RSS (define) feed aggregator Bloglines last month.

Ask Jeeves rolled its advertising products into a new division, AJinteractive, in October.

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